In 1776, five world-changing documents entered the human library. It was our greatest year of freedom literature, by far: 1776 began with the publication of Thomas Paine's then-anonymous tract, "Common Sense," wherein the author Paine-stakingly skewered the British crown and argued for independence.

At a time when the population of America was under three million, nearly every literate household owned this book. In its first year, over 500,000 copies of Common Sense were printed in 25 editions, turning the tide of public sentiment toward revolution. Then, in the middle of the year - July 2 - 56 members of the Continental Congress signed Thomas Jefferson's "Declaration of Independence" in Philadelphia.

On December 23, Tom Paine ended the year with this stirring opening of the first edition of "The Crisis."

"THESE are the times that try men's souls. The summer soldier and the sunshine patriot will, in this crisis, shrink from the service of their country; but he that stands by it now, deserves the love and thanks of man and woman. Tyranny, like hell, is not easily conquered..."

While these three documents memorialized the Revolution, Britain published two ground-breaking (and much longer) books in 1776. One was the first edition of Edward Gibbon's "The Decline and Fall of the Roman Empire." According to David McCullough's book "1776," Gibbon was a member of the House of Commons at the time, and he favored smashing the rebel uprising in America. Apparently, the great historian thought the British Empire was the "Rome" of its day, still in its ascent - not ready for a decline.

The fifth great book published that year (March 9, 1776) was Scotsman Adam Smith's "Inquiry into the Nature and Causes of the Wealth of Nations," perhaps the most influential book of modern times.

For centuries, European nations were seduced by the economics of "mercantilism" - which often boiled down to trade by subterfuge or theft in order to stockpile gold and goods in a favorable "balance of trade." Portugal, Spain, and France grew great and inevitably waned based on these principles, but Adam Smith stuck a fork into mercantilism by favoring mutually beneficial trade based on "comparative advantage."

Smith introduced a system of "natural liberty" in which the "invisible hand" of self-interest caused merchants to create goods and services that would generate such demand that both buyer and seller would profit. Capitalism leverages human nature for a positive outcome instead of indulging in the base instincts of the mercantilists to steal commodities from weaker people or nations, primarily in the New World.

As we celebrate the 240th anniversary of Adam Smith's book, we can see that global growth exploded after 1776, as the nations which followed the prescriptions of that book were the fastest growing regions.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

As this chart shows, the economic systems that followed Adam Smith most closely - the U.S., UK, and Western Europe - grew first and fastest. However, we don't need to look back hundreds of years to see this. Since World War II, we can examine a billion-person experiment in Marxism vs. Adam Smith in China - first, 30 years under Mao and his immediate successors (1949-78) and then nearly 40 years under Deng Xiaoping and his capitalist successors. Deng began by freeing the farmers to retain some of their production and then he expanded capitalism to township enterprises and then to exporting industries.

The comparison between the two systems is clear (below), with a 110-fold increase in per capita GDP:

China's Per-Capita GDP Growth (measured in yuan per person)

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Freedom involves more than trade; freedom gives scientists and inventors the ownership of their ideas and the opportunity to profit from their work. In 1800, the average lifespan was under 40 years, virtually unchanged since ancient times. Many of the greatest composers failed to reach 40 - Mozart died at 35, Schubert at 31, Chopin at 39, Mendelssohn at 38. Adam Smith argued that the main source of wealth was not gold, silver, currency, land, or natural resources, but "the skill, dexterity, and judgment in the application of labor." That's why small, relatively weak nations (say, Singapore, Holland, or Switzerland) can prosper while larger nations with plenty of resources (like Brazil, Russia, or South Africa) often fail.

Here's another example:

"In 1950 oil-rich Venezuela was more than three times as rich per capita as South Korea. Yet by 2011 this relation was nearly reversed as capitalist South Korea's per capita GDP was nearly three times that of Hugo Chavez's Venezuela, despite several years of $100-a-barrel oil." - From "How the Wealth of Nations Made Us All Wealthier," by Martin Conrad, Barron's, April 23, 2016.

Gross Output Tends to Rise (or Fall) Faster than GDP

This Thursday, all eyes will be on the Bureau of Economic Analysis' ("BEA") initial (wild guess) estimate of first-quarter GDP, released April 28. I won't pay much attention since revisions are usually large and (as I showed last week), first-quarter growth rates routinely underperform the second quarter and the year as a whole. We already know that the economy is weak from various components of GDP already released, plus the Leading Economic Indicators (LEI). According to the Conference Board, reporting last Wednesday, the LEI rose a puny 0.2% in March after falling the previous three months, reflecting a sputtering economy.

These 10 indicators are "Leading" since they reflect business activity more than consumer demand. As you can see, the LEI is dominated by business activity, not consumer actions.

The 10 Leading Economic Indicators (LEI):

Weekly hours worked by manufacturing workers

Average weekly initial applications for unemployment insurance

Manufacturers' new orders for consumer goods and materials

ISM Index of new orders

Manufacturers' new orders for non-defense capital goods

New building permits for private housing units

The S&P 500 stock index

The leading credit index

The spread between long and short interest rates

Average consumer expectations for business conditions

It doesn't make sense to ignore most business-to-business transactions in the GDP. Businesses spend more than consumers do, but businesses represent only 16% of GDP, dwarfed by consumers (68%) in the GDP's accounting (the rest is government). Only about 12% of private-sector jobs are in retailing, and those are some of the lowest paying jobs. Most people work for companies that sell to other companies.

Manufacturers and shippers and designers are vital components of the economy, creating jobs and adding value. A $300 wood table, for instance, involves several stages of production - from harvesting trees for lumber, which is used to shape the boards necessary to manufacture the table. Along the way, each business is paid in real cash, but in the GDP, only the $300 table is counted, ignoring interim transactions.

Gross Output - a gross name, to be sure, but with a more elegant acronym ("GO") - was first officially released in 2013 (For the full rundown of the Gross Output statistics by industry, see the BEA website).

I'm concerned about the 2016 GDP because Gross Output grew by only 0.6% last year and declined slightly (0.15%) in the fourth quarter vs. the third quarter. Gross Output tends to rise or fall faster than GDP. In a downturn, business spending declines faster than consumer spending. In 2009, for instance, nominal GDP fell only 2% while GO fell by over 7% and intermediate inputs fell by 10%. Wholesale trade fell 20%.

To clarify this difference, economist Mark Skousen created a business-to-business (B2B) index based on GO data. It measures all the business spending in the supply chain and new private capital investment. As you can see from this comparison, B2B spending declines faster than consumer spending in a recession (2008-09), but it also recovers faster than consumer spending (in 2007 and the years since 2010).

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

There are several investment applications for this new statistic. First of all, consult the BEA tables for yourself to see how each of several basic industries is faring. You'll find that some industries are growing far faster than others. In the last quarter, for instance, Information increased its rate of growth while growth rates slowed in the other sectors.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Gross Output statistics can help you examine the outlook for the primary industries ("dirty jobs"), which could help you bypass some trendy retail and tech stocks that tend to fascinate so many TV talking heads.

There will be some flaws and inconsistencies to work out with this "GO" statistic, but it is a valuable new analytical tool for market analysts and economists, as well as a new addition to the Fed's data dashboard.

Disclosure: *Navellier may hold securities in one or more investment strategies offered to its clients.